Malaysia's EPF investment income drops in second quarter on weak stocks

Malaysia’s Employees Provident Fund (EPF) says its total investment income fell 0.56% year-on-year to 12.32 billion ringgit (US$2.95 billion) in the second quarter as weak domestic stocks drove down income from equities by over one-fifth.

Its total investment income declined 13.02% year-on-year to 21.98 billion ringgit in the first half of 2019.

Mohamad Nasir Ab Latif, the EPF’s deputy chief executive officer who oversees investments, predicts that local and global market conditions will likely remain challenging for the rest of the year, and warns that it will be “very difficult” for the fund to maintain the momentum from the first half of 2019 because global indicators are “worrying”.

“…with the exception of the US, many major markets remained below their peaks in 2018, and trading conditions were difficult in the second quarter of 2019,” he says in a statement on September 6.

He says the fund’s earnings were dragged down by a weak Malaysian stock market.

The EPF’s investment income from stocks shrank 20.67% to 6.33 billion ringgit in the three months to June 30 from 7.98 billion ringgit in the second quarter of last year.

Other than stocks, the EPF reported higher investment income from all other sources. Income from Malaysian government securities rose 12.08% to 2.69 billion ringgit, and income from loans and bonds jumped 42.94% to 2.43 billion ringgit.

Income from real estate and infrastructure swelled nearly five-fold to 457.35 million ringgit, and income from money market instruments almost doubled to 412.33 million ringgit.

“The benefit of having a diversified portfolio is that the investment income from overseas assets helped to cushion the decline in income from the domestic equity portfolio,” Mr. Mohamand Nasir says. “For us at the EPF, the short-term volatility gave us a chance to buy good assets to strengthen the portfolio for the long term.”

Looking ahead, he says global market conditions "will continue to be extremely challenging and volatile" for the rest of the year.

"There are a lot of uncertainties, especially around Brexit, the ongoing US-China trade dispute, and growing protectionism in other countries such as Japan and South Korea. We are also keeping a close eye on the possibility of an economic slowdown and the rising risk of recession in major economies, which may have a knock-on effect on global growth," he says.

According to Mr. Mohamad Nasir, although market conditions in Malaysia also remain “challenging” over the short term, it "provides good buying opportunities” for long-term funds like the EPF.

"Heading into the end of the year, we believe it will be very difficult for us to maintain the first half momentum as we are seeing worrying trends emerging in many global indicators,” he says. “Despite this outlook, we remain firmly confident in our ability to deliver above-inflation returns, meeting our objective of preserving and enhancing the value of our members’ savings over the long term.”

The EPF, Malaysia’s largest pension fund, had 886.45 billion ringgit of total assets as at June 30, up 3.08% from 859.99 billion ringgit three months earlier.